Nepal
and Foreign InvestmentWith the expectation to supplement
domestic private investment through foreign capital flows, transfer
of technology, enhancement in management skills and productivity
and to get into the global market, Nepal finally opened its door
for foreign investment by adopting the most liberal economic policies.

The Government of Nepal has also created a competitive
and investment friendly environment by making the administrative
procedures simple and easy and also providing attractive incentives
and facilities to the foreign investors
making Nepal one of the safest and suitable business destinations
in the world.

The law of Nepal also assures the security of
investments against nationalization. Besides this, Nepal being a
member of Multilateral Investment Guarantee Agency (MIGA) assures
the foreign investors against non-commercial risks like currency
transfer, breach of contract, war and civil disturbances in the
country. As of July 2004, according to the statistics of foreign
investment division of Department of Industry, there are about 905
foreign direct investment projects in Nepal that worth approximately
US$ 1.65 billion. These projects in the sectors like Agriculture/Forestry;
Manufacturing; Energy; Construction; Mineral; Tourism and other
Service related industries have generated employment opportunities
to almost 95,000 people in Nepal. India, USA, China, UK, Norway,
Japan, South Korea and Germany are the leading countries with highest
number of projects in Nepal.

Any investor can establish an industry or a project in Nepal with
the approval and permission of the Department of Industry under
His Majesty’s Government of Nepal. In order to obtain the
permission, the foreign investor should first submit an application
to the Department. There are various forms of foreign investment
like shares, loans, etc. either in joint venture or cent percent
foreign. Almost every sector in Nepal is open for investment like
manufacturing, energy, tourism, mining, agro based industries. But
cottage, arm and ammunition industries; explosives and atomic energy;
real estate; poultry and fisheries; and some other sensitive industries
directly relating to public health, environment and defense are
a few exceptions for foreign investment.

The potential foreign investor is granted six months non-tourist
visa for the feasibility study. Until the investment of a foreign
investor is retained in Nepal, he/she and his/her dependents will
be granted a business visa. If an investor makes a lump sum investment
of US$ 100,000 or its equivalent in a convertible currency and as
long as he/she retains investment in Nepal, he/she is granted a
residential visa along with his/her dependents.

Some incentives and
facilities accorded by the Government to foreign investors:No income tax on (a) dividends
(b) export earning (c) interest earned on foreign loan.

Reimbursement of(a)
customs duty and sales tax on raw materials meant for industrial
use (b) sales tax and excise duty levied on products sold to Export
Promotion House (c) the customs duty, sales tax, excise duty and
premium levied on raw materials, etc. used for production by an
export industry (d) excise duty, sales tax and premium levied on
any product and customs duty, excise duty and sales tax levied on
the raw materials, auxiliary raw materials, etc., used for the production
of goods sold within the country in foreign currency (e) customs
duty, sales tax, excise duty and premium levied on inputs used for
production of intermediate goods to be used for the production of
exportable goods including refund on the sales tax and excise duty
paid on intermediate goods on the basis of the quantity of exports
within sixty days from the date of export (f) excise duty or sales
tax or both to the industry using duty-and tax-paid raw materials,
chemicals and packing materials.

A deduction of(a)
40 % of the value of new additional fixed assets from taxable income
to industries which diversify production through reinvestments or
expanding installed capacity by 25 % or more or modernize technology
or develop ancillary industries (b) up to 50 % from the taxable
income for the investment made on process or equipment for non-pollution
(c) 10% from gross profit that goes for technology or product development
and skill enhancement (d) 5% or less of the gross income, spent
on publicity and promotional services, hospitality and any other
similar permissible expenses.

15% of income tax on income earned as technical
fees as well as royalty.

Exemption of tax, duty and fee on the products,
machinery, equipment, tools and raw materials used by an export
industry.

Capitalization of pre-operating expenses incurred
for skill development and training.

An additional of 10 % rebate on income tax to
any industry providing direct employment to 600 or more Nepalese
citizens.

No royalty on captive power generation for the
industry's own use and no double sales tax on the raw materials
and products.

Apart from all these, a foreign investor can employ
an expert or technical personnel in the foreign investment project
from his/her particular country upon the permission of the Labor
Department and these experts can remit up to 75% of their income
in convertible currency.

About Nepal
Nepal lies
in between the most populous countries of the world, India and China
and maintains very good economic rapport with her neighbors which
are also excellent trading partners with huge potentials for Nepalese
exports. While Nepal has preferential trading arrangement with India,
she has very close economic ties with China. Other close neighbors
of Nepal are Bangladesh and Pakistan. Nepal and Bangladesh have
already started bilateral trade through land route. Nepal along
with Bangladesh, Bhutan, India, Maldives, Pakistan and Sri Lanka
are the seven member countries of South Asian Association for Regional
Cooperation (SAARC). The SAARC nations have a Preferential Trading
Arrangement and are heading to free trade area under the SAARC framework.

The labor cost of Nepal is comparatively very
low. Semiskilled and skilled laborers are plenty so as the unskilled
laborers who generally work for 8 hours a day and 48 hours a week
with a half and hour lunch break which is moreover known as tiffin
break. The wage and salary of any of these groups is also lower
than in any other developing countries. The permanent workers are
entitled to 13 days of public holidays, 15 days of sick leave with
pay or half pay. Female employees are entitled to 52 days paid maternity
leave but all these employee benefits and facilities vary from one
organization to the other. The retirement age in Nepal is 55 but
in some cases, it can be extended to the age of 60. Most of the
offices in Nepal are closed Saturdays and Sundays like the Government
organizations; Banks; Diplomatic Corps, etc. but others work from
Sunday through Friday – six days a week.

Banking Service
The Central Bank of Nepal - Nepal Rastra Bank, the two indigenous
commercial banks - Nepal Bank and Rastriya Banijya Bank, other joint
venture and commercial banks and financial corporations provides
loans and full fledged services. The commercial
banks also determine the open market exchange
rate. There are insurance companies also providing insurance
services.

Scope for foreign
investment in Hydro Power
Nepal has a huge potential of hydro power that comes to about 83,000
MW out of which 43,000 MW is economically viable. Until now, Nepal
has not been able to exploit much of its potentiality and the people
in Nepal still face severe power shortages. In order to harness
and develop hydropower, private sectors were involved to carry out
small and medium sized hydro power projects. Similarly the government
is encouraging private foreign investment in this sector. A number
of projects for feasibility studies and development has also been
recognized which are as follows:

Scope for foreign
investment in other areas/sectorsTourism also avails high scope for foreign investment
opportunities. As of the July 2004 statistics of Department of Industry,
there are about 218 foreign direct investment projects in this sector.

As of July 2004, there are 14 projects under Agriculture
and Forestry. Medicinal and Aromatic Herbs; Flower and Vegetable
Seeds; Floriculture and Sericulture; Processing of Spices, Coffee;
Fruits and Dairy Products; Vegetable and Mushroom Farming and Tea
comes under this sector.

Mineral that includes Stone and Limestone; Talc;
Silica; Dolomite; Iron-ore; Oil and Natural Gas needs to be further
explored. There are 3 foreign direct investment projects in this
sector.

Areas like Computer Software Development; Leather
and Textile; Pharmaceutical; Electronic and the Service Industries
also carry high possibilities of foreign investment. As per the
same statistics of July 2004, there are 435 Manufacturing; 15 Energy
Based; 17 Construction and 203 Service Industries related foreign
direct investment projects in Nepal.

Although the Government of Nepal is open to foreign
direct investment with all its liberal policies, sometimes its implementation
policies seems unclear with the bureaucratic delays and inefficiency
but it should not be considered as an obstacle towards the foreign
investment in Nepal.